Question 1

If bad drivers can usually avoid being ticketed by the police,then insurance companies will

Accepted Answer

A)  use one's driving record as a signal. 
B)  use one's driving record as a screening device. 
C)  not be able to use one's driving record as a screening device. 
D)  request driving records directly from the police and not from the individual applicant. 
A)  use one's driving record as a signal. 
B)  use one's driving record as a screening device. 
C)  not be able to use one's driving record as a screening device. 
D)  request driving records directly from the police and not from the individual applicant. C

Question 2

A consumer could screen the quality of a pizza joint

Accepted Answer

A)  by asking friends. 
B)  using online rating sites. 
C)  by watching the chef prepare the pizza. 
D)  All of the above. 
A)  by asking friends. 
B)  using online rating sites. 
C)  by watching the chef prepare the pizza. 
D)  All of the above. D

Question 3

Which of the following acts as a hostage for employees to behave well?

Accepted Answer

A)  on-site childcare where employees take their children while working 
B)  performance bonuses 
C)  training 
D)  bonding 
A)  on-site childcare where employees take their children while working 
B)  performance bonuses 
C)  training 
D)  bonding D

Question 4

Which of the following would be considered a contingent contract?

Accepted Answer

A)  a piece rate contract 
B)  a profit-sharing contract 
C)  a contact with a bonus 
D)  All of the above. 
A)  a piece rate contract 
B)  a profit-sharing contract 
C)  a contact with a bonus 
D)  All of the above.

Question 5

eBay has a seller reputation system to provide

Accepted Answer

A)  consumers with a signal concerning seller quality. 
B)  sellers a chance to signal other sellers concerning their quality. 
C)  a reduction in monopoly power. 
D)  improvements in investor relations. 
A)  consumers with a signal concerning seller quality. 
B)  sellers a chance to signal other sellers concerning their quality. 
C)  a reduction in monopoly power. 
D)  improvements in investor relations.

Question 6

Contingent contracts

Accepted Answer

A)  are inefficient when monitoring is possible. 
B)  equally divide the risk between principal and agent. 
C)  can be used when monitoring is not reasonably possible. 
D)  put the risk on the principal. 
A)  are inefficient when monitoring is possible. 
B)  equally divide the risk between principal and agent. 
C)  can be used when monitoring is not reasonably possible. 
D)  put the risk on the principal.

Question 7

What role does a company like J.D.Power (which provides product satisfaction reviews)serve?

Accepted Answer

A)  It provides a screening test. 
B)  It provides a signal of quality. 
C)  It reduces moral hazard. 
D)  It reduces costs of giving surveys. 
A)  It provides a screening test. 
B)  It provides a signal of quality. 
C)  It reduces moral hazard. 
D)  It reduces costs of giving surveys.

Question 8

If reckless drivers are more likely to buy automobile insurance than safe drivers are

Accepted Answer

A)  a moral hazard has occurred. 
B)  adverse selection has occurred. 
C)  the market for insurance is efficient. 
D)  then automobile insurance will be fairly priced. 
A)  a moral hazard has occurred. 
B)  adverse selection has occurred. 
C)  the market for insurance is efficient. 
D)  then automobile insurance will be fairly priced.

Question 9

In which type of contract is the agent paid per unit of output?

Accepted Answer

A)  A commission based contract. 
B)  A sharecropping contract. 
C)  A piece rate contract. 
D)  A contract with stock options as salary. 
A)  A commission based contract. 
B)  A sharecropping contract. 
C)  A piece rate contract. 
D)  A contract with stock options as salary.

Question 10

If a principal and agent have an efficient contract,then

Accepted Answer

A)  one of them must be more risk-averse than the other. 
B)  neither can be made better off without harming the other. 
C)  they must have symmetric information. 
D)  the principal bears more of the risk. 
A)  one of them must be more risk-averse than the other. 
B)  neither can be made better off without harming the other. 
C)  they must have symmetric information. 
D)  the principal bears more of the risk.

Question 11

If all firms pay an efficiency wage,then

Accepted Answer

A)  there is no cost to shirking because the shirking worker can receive his high wage at another firm after being caught and fired. 
B)  the macroeconomy would enjoy a prolonged period of near-zero unemployment. 
C)  there is a cost to shirking because the efficiency wage is less than it would have been if only a few firms paid it. 
D)  there is a cost to shirking because the shirking worker will spend a greater time unemployed after being caught and fired. 
A)  there is no cost to shirking because the shirking worker can receive his high wage at another firm after being caught and fired. 
B)  the macroeconomy would enjoy a prolonged period of near-zero unemployment. 
C)  there is a cost to shirking because the efficiency wage is less than it would have been if only a few firms paid it. 
D)  there is a cost to shirking because the shirking worker will spend a greater time unemployed after being caught and fired.

Question 12

Many companies monitor their employees' Internet use and email.Why might they be doing this?

Accepted Answer

A)  because they like to spy 
B)  in order to improve morale 
C)  to gain inside information on new consumer trends 
D)  to reduce shirking 
A)  because they like to spy 
B)  in order to improve morale 
C)  to gain inside information on new consumer trends 
D)  to reduce shirking

Question 13

In a store that sells souvenirs,suppose an agent receives a $1 commission for each unit sold,and the principal receives the residual profit.As a result

Accepted Answer

A)  joint profit is maximized. 
B)  the agent will sell until the principal's marginal cost equals $1. 
C)  no agent would enter into such a contract. 
D)  the agent wishes to sell as many units as he can. 
A)  joint profit is maximized. 
B)  the agent will sell until the principal's marginal cost equals $1. 
C)  no agent would enter into such a contract. 
D)  the agent wishes to sell as many units as he can.

Question 14

Suppose a plaintiff hires a lawyer to represent her in a court case.Under which of the following contracts is efficiency in risk bearing assured?

Accepted Answer

A)  The lawyer is paid by the hour. 
B)  The lawyer receives a share of the settlement. 
C)  The lawyer receives a fixed fee. 
D)  It is impossible to determine without the degree of risk aversion for each. 
A)  The lawyer is paid by the hour. 
B)  The lawyer receives a share of the settlement. 
C)  The lawyer receives a fixed fee. 
D)  It is impossible to determine without the degree of risk aversion for each.

Question 15

Author A accepts a $5,000 advance and a 10% royalty after 5,000 books are sold.Author B foregoes the advance and negotiates for a 15% royalty on all books sold.Author C decides to self publish his book and keep 50% of all sales revenue.Which of these authors is most likely to have 10 books published?

Accepted Answer

A)  Author A 
B)  Author C 
C)  Author B 
D)  They are all equally likely. 
A)  Author A 
B)  Author C 
C)  Author B 
D)  They are all equally likely.

Question 16

In the market for used cars,if buyers and sellers have perfect information about the quality of cars,then

Accepted Answer

A)  all cars will sell for the same price and there is no asymmetric information problem. 
B)  all cars will sell for the same price and there is an asymmetric information problem. 
C)  cars sell for their true value and there is no asymmetric information problem. 
D)  all cars will sell for the same price and there is a moral hazard problem. 
A)  all cars will sell for the same price and there is no asymmetric information problem. 
B)  all cars will sell for the same price and there is an asymmetric information problem. 
C)  cars sell for their true value and there is no asymmetric information problem. 
D)  all cars will sell for the same price and there is a moral hazard problem.

Question 17

A noisy monopoly

Accepted Answer

A)  will be regulated by the Federal Trade Commission until it reduces its noise emissions. 
B)  sells products under its own label for a low price, and sells the virtually identical product with the same quality under a private label for a higher price. 
C)  sells products under its own label for a high price, and sells the virtually identical product with the same quality under a private label for a lower price. 
D)  leverages the Lemon Law to sell both good and poor quality goods for the same price. 
A)  will be regulated by the Federal Trade Commission until it reduces its noise emissions. 
B)  sells products under its own label for a low price, and sells the virtually identical product with the same quality under a private label for a higher price. 
C)  sells products under its own label for a high price, and sells the virtually identical product with the same quality under a private label for a lower price. 
D)  leverages the Lemon Law to sell both good and poor quality goods for the same price.

Question 18

The benefit to employers of deferred payments is that

Accepted Answer

A)  adverse selection is eliminated. 
B)  employers cannot engage in any opportunistic behavior. 
C)  these payments raise the cost of being fired, so more monitoring is needed. 
D)  these payments raise the cost of being fired, so less monitoring is needed. 
A)  adverse selection is eliminated. 
B)  employers cannot engage in any opportunistic behavior. 
C)  these payments raise the cost of being fired, so more monitoring is needed. 
D)  these payments raise the cost of being fired, so less monitoring is needed.

Question 19

If information in the market for used motorcycles is symmetric

Accepted Answer

A)  both buyers and sellers are equally ignorant. 
B)  both good and bad motorcycles will sell for the same price. 
C)  if only good motorcycles are sold, the price would be higher. 
D)  All of the above. 
A)  both buyers and sellers are equally ignorant. 
B)  both good and bad motorcycles will sell for the same price. 
C)  if only good motorcycles are sold, the price would be higher. 
D)  All of the above.

Question 20

In the market for used cars

Accepted Answer

A)  the market is efficient because the cars are bought by the people who value them the most. 
B)  the market is inefficient because lemons drive out the high quality cars. 
C)  no cars are sold, because people don't like buying lemons. 
D)  Not enough information to determine. 
A)  the market is efficient because the cars are bought by the people who value them the most. 
B)  the market is inefficient because lemons drive out the high quality cars. 
C)  no cars are sold, because people don't like buying lemons. 
D)  Not enough information to determine.

If bad drivers can usually avoid being ticketed by the police,then insurance companies will

A consumer could screen the quality of a pizza joint

Which of the following acts as a hostage for employees to behave well?

Which of the following would be considered a contingent contract?

eBay has a seller reputation system to provide

Contingent contracts

What role does a company like J.D.Power (which provides product satisfaction reviews)serve?

If reckless drivers are more likely to buy automobile insurance than safe drivers are

In which type of contract is the agent paid per unit of output?

If a principal and agent have an efficient contract,then

If all firms pay an efficiency wage,then

Many companies monitor their employees' Internet use and email.Why might they be doing this?

In a store that sells souvenirs,suppose an agent receives a $1 commission for each unit sold,and the principal receives the residual profit.As a result

Suppose a plaintiff hires a lawyer to represent her in a court case.Under which of the following contracts is efficiency in risk bearing assured?

In the market for used cars,if buyers and sellers have perfect information about the quality of cars,then

A noisy monopoly

The benefit to employers of deferred payments is that

If information in the market for used motorcycles is symmetric

In the market for used cars

Introduction

Supply and Demand

Empirical Methods for Demand Analysis

Consumer Choice

Production

Costs

Firm Organization and Market Structure

Competitive Firms and Markets

Monopoly

Pricing With Market Power

Oligopoly and Monopolistic Competition

Game Theory and Business Strategy

Strategies Over Time

Managerial Decision-Making Under Uncertainty

Government and Business

Global Business

Filters

Exam 15: Asymmetric Information

If bad drivers can usually avoid being ticketed by the police,then insurance companies will

A consumer could screen the quality of a pizza joint

Which of the following acts as a hostage for employees to behave well?

Which of the following would be considered a contingent contract?

eBay has a seller reputation system to provide

Contingent contracts

What role does a company like J.D.Power (which provides product satisfaction reviews)serve?

If reckless drivers are more likely to buy automobile insurance than safe drivers are

In which type of contract is the agent paid per unit of output?

If a principal and agent have an efficient contract,then

If all firms pay an efficiency wage,then

Many companies monitor their employees' Internet use and email.Why might they be doing this?

In a store that sells souvenirs,suppose an agent receives a $1 commission for each unit sold,and the principal receives the residual profit.As a result

Suppose a plaintiff hires a lawyer to represent her in a court case.Under which of the following contracts is efficiency in risk bearing assured?

In the market for used cars,if buyers and sellers have perfect information about the quality of cars,then

A noisy monopoly

The benefit to employers of deferred payments is that

If information in the market for used motorcycles is symmetric

In the market for used cars

Introduction

Supply and Demand

Empirical Methods for Demand Analysis

Consumer Choice

Production

Costs

Firm Organization and Market Structure

Competitive Firms and Markets

Monopoly

Pricing With Market Power

Oligopoly and Monopolistic Competition

Game Theory and Business Strategy

Strategies Over Time

Managerial Decision-Making Under Uncertainty

Government and Business

Global Business

Filters